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3.10 INDIRECT TAXES

charge basis by the recipient of such goods or services or both
and all the provisions of this Act shall apply to such recipient
as if he is the person liable for paying the tax in relation to the
supply of such goods or services or both.

(4) The central tax in respect of the supply of taxable goods or
services or both by a supplier, who is not registered, to a
registered person shall be paid by such person on reverse
charge basis as the recipient and all the provisions of this Act
shall apply to such recipient as if he is the person liable for
paying the tax in relation to the supply of such goods or
services or both.

(5) The Government may, on the recommendations of the Council,
by notification, specify categories of services the tax on intra-
State supplies of which shall be paid by the electronic
commerce operator if such services are supplied through it,
and all the provisions of this Act shall apply to such electronic
commerce operator as if he is the supplier liable for paying the
tax in relation to the supply of such services.
Provided that where an electronic commerce operator does not
have a physical presence in the taxable territory, any person
representing such electronic commerce operator for any
purpose in the taxable territory shall be liable to pay tax:
Provided further that where an electronic commerce operator
does not have a physical presence in the taxable territory and
also he does not have a representative in the said territory,
such electronic commerce operator shall appoint a person in
the taxable territory for the purpose of paying tax and such
person shall be liable to pay tax.

ANALYSIS

Central Goods and Services Tax (CGST) shall be levied on all intra-State
supplies of goods or services or both.

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CHARGE OF GST 3.11

The tax shall be collected in such manner as may be prescribed and shall be
paid by the taxable person. However, intra-State supply of alcoholic liquor
for human consumption is outside the purview of CGST.

Value for levy: Transaction value under section 15 of the CGST Act.

Rates of CGST: Rates for CGST are rates as may be notified by the
Government on the recommendations of the GST Council [Rates notified are
0%, 0.125%, 1.5%, 2.5%, 6%, 9% and 14%]. Maximum rate of CGST will be
20%.

On inter-State supplies of goods and/or services, Integrated Goods and

Services Tax (IGST) is levied on the transaction value under section 15 of the
CGST Act1. Since alcoholic liquor for human consumption is outside the
purview of GST law, IGST is also not leviable on the same. IGST is
approximately the sum total of CGST and SGST/UTGST. Maximum rate of
IGST will be 40%.

However, CGST/IGST on supply of the following items has not been levied
immediately. It shall be levied with effect from such date as may be notified
by the Government on the recommendations of the Council:

petroleum crude

high speed diesel

motor spirit (commonly known as petrol)

natural gas and

aviation turbine fuel

Tax payable on supply of goods or services or both under Reverse
charge

CGST/IGST shall be paid by the recipient of goods or services or both,
on reverse charge basis, in the following cases:
 Supply of goods or services or both, notified by the Government

on the recommendations of the GST Council.

1 Goods imported into India: For the goods imported into India, the IGST shall be levied
and collected as per the section 3 of the Custom Tariff Act, 1975 i.e. the additional duty
shall be as per the Custom Tariff Act, 1975 and the value shall also be determined as per
the said Act. This aspect will be discussed in detail at the Final Level.

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3.12 INDIRECT TAXES

 Supply of taxable goods or services or both by an unregistered
supplier to a registered person.

All the provisions of the CGST/IGST Act shall apply to the recipient in
the aforesaid cases as if he is the person liable for paying the tax in
relation to the supply of such goods or services or both. Let us first
understand the concept of reverse charge mechanism:

Generally, the supplier of goods or services is liable to pay GST.
However, under the reverse charge mechanism, the liability to pay GST
may be cast on the recipient of the goods or services. Reverse
charge means the liability to pay tax is on the recipient of supply of
goods or services instead of the supplier of such goods or services in
respect of notified categories of supply.

There are two type of reverse charge scenarios ⚿ provided in law.

(i) First is dependent on the nature of supply and/or nature of
supplier. This scenario is covered by section 9(3) of the CGST/
SGST (UTGST) Act [as discussed in preceding paras]. Similar
provisions are contained under the IGST law.

(ii) Second scenario is covered by section 9(4) of the CGST Act
[as discussed in preceding paras] where taxable supplies by
any unregistered person to a registered person are covered.
Similar provisions are contained under the IGST law.

⚿ Corresponding provisions are included under the charging section
5 of the IGST Act.

It is important to note that GST being an indirect tax, burden of the
tax has to be ultimately passed on to the recipient. Under reverse
charge also, the burden to pay GST is on the recipient, but the
compliance requirements, i.e. to obtain registration under GST,
deposit tax, filing returns with the Government, etc. has been shifted
from supplier to recipient.

Goods and services notified under reverse charge mechanism are as
follows:

A. Supplies of goods taxable under reverse charge, i.e. the
goods where tax is payable by the recipient: Goods like
cashewnuts [not shelled/peeled], bidi wrapper leaves, tobacco

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CHARGE OF GST 3.13

leaves, supply of lottery, silk yarn, used vehicles, seized and
confiscated goods, old and used goods, waste and scrap, raw
cotton, etc. are taxable under reverse charge, i.e. recipient is
liable to pay tax.

B. Supply of services taxable under reverse charge, i.e. the
services where tax is payable by the recipient: Notification
No. 13/2017 CT (R) dated 28.06.2017 as amended has notified
the following categories of supply of services wherein whole
of the CGST shall be paid on reverse charge basis by the
recipient of services:

S. Category of supply Supplier of Recipient of
No. of service service Service

1. Supply of services by Goods Transport (a) Any factory

a Goods Transport Agency (GTA) registered under

Agency (GTA) in who has not or governed by

respect of paid CGST @ 6% the Factories Act,

transportation of [Please refer the 1948; or

goods by road to- analysis given (b) any society

(a) any factory subsequently.] registered under

registered under or the Societies

governed by the Registration Act,

Factories Act, 1948; 1860 or under

or any other law for

(b) any society the time being in
force in any part
registered under the of India; or

Societies Registration

Act, 1860 or under (c) any co-

any other law for the operative society

time being in force in established by or

any part of India; or under any law; or

(c) any co- (d) any person
registered under
operative society the CGST Act or
the IGST Act or
established by or

under any law; or

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3.14 INDIRECT TAXES

(d) any person the SGST Act or
registered under the the UTGST Act;
CGST Act or the IGST or
Act or the SGST Act
or the UTGST Act; or (e) any body
corporate
(e) any body established, by or
under any law; or
corporate
(f) any
established, by or partnership firm
whether
under any law; or registered or not
under any law
(f) any including
association of
partnership firm persons; or

whether registered (g) any casual
taxable person;
or not under any law located in the
taxable territory.
including association
[Hereinafter referred
of persons; or as Specified
recipients]
(g) any casual
taxable person.

2. Services supplied by An individual Any business

an individual advocate entity located in

advocate including including a the taxable

a senior advocate or senior advocate territory.

firm of advocates or firm of

by way of legal advocates.

services, directly or

indirectly.

“Legal service”
means

any service provided

in relation to advice,

consultancy or

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CHARGE OF GST 3.15

assistance in any
branch of law, in any
manner and includes
representational
services before any
court, tribunal or
authority.

3. Services supplied by An arbitral Any business

an arbitral tribunal tribunal. entity located in

to a business entity. taxable territory.

4. Services provided by Any person Any body

way of sponsorship corporate or

to any body partnership firm

corporate or located in the

partnership firm. taxable territory.

5. Services supplied by Central Any business

the Central Government, entity located in

Government, State State the taxable

Government, Union Government, territory.

territory or local Union territory or

authority to a local authority

business entity

excluding, -

(1) renting of

immovable

property, and

(2) services
specified below-

(i) services by

the Department

of Posts by way

of speed post,

express parcel

post, life

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3.16 INDIRECT TAXES

insurance, and

agency services

provided to a

person other

than Central

Government,

State

Government or

Union territory

or local

authority;

(ii) services in

relation to an

aircraft or a

vessel, inside or

outside the

precincts of a

port or an

airport;

(iii) transport of

goods or

passengers.

5A Services supplied by Central Any person

Central Government, registered under

Government, State State the CGST Act,

Government, Union Government, 2017

territory or local Union territory

authority by way of or local

renting of authority

immovable property

to a person

registered under

CGST Act, 2017

6. Services supplied by A director of a The company or
a director of a company or a a body corporate

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CHARGE OF GST 3.17

company/ body body corporate located in the
corporate taxable territory.

to the said company/
body corporate.

7. Services supplied by An insurance Any person

an insurance agent agent carrying on

to any person insurance
carrying on insurance business, located
business. in the taxable
territory.

8. Services supplied by A recovery agent A banking

a recovery agent company or a

to a banking financial
company or a institution or a
financial institution non-banking
or a non- banking financial
financial company. company,
located in the

taxable territory.

9. Supply of services Author or music Publisher, music

by an author, music composer, company,

composer, photographer, producer or the

photographer, artist, or the like like, located in

artist or the like the taxable

by way of transfer or territory.

permitting the use or

enjoyment of a

copyright covered

under section

13(1)(a) of the

Copyright Act, 1957

relating to original

literary, dramatic,

musical or artistic

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3.18 INDIRECT TAXES

works

to a publisher,
music company,
producer or the like.

10. Supply of services Members of RBI
by
by the members of Overseeing

Overseeing Committee

Committee to constituted

Reserve Bank of the RBI

India (RBI)

11. Services supplied by Individual A banking

individual Direct Direct Selling company or a

Selling Agents Agents (DSAs) NBFC, located in

(DSAs) other than a other than a the taxable

body corporate, body corporate, territory

partnership or partnership or

limited liability LLP firm

partnership (LLP)

firm to bank or

non-banking

financial company

(NBFCs).

All the above services have also been notified for reverse charge under
IGST Act. In addition to them, two additional services are also included for
IGST purposes relating to which will be dealt at the Final level.

For purpose of this notification,-

(a) The person who pays or is liable to pay freight for the
transportation of goods by road in goods carriage, located in
the taxable territory shall be treated as the person who
receives the service for the purpose of this notification.

(b) Body Corporate: has the same meaning as assigned to it in clause
(11) of section 2 of the Companies Act, 2013.

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CHARGE OF GST 3.19

As per section 2(11) of the Companies Act, 2013, body corporate or
corporation includes a company incorporated outside India, but
does not include—

(i) a co-operative society registered under any law relating to
co-operative societies; and

(ii) any other body corporate (not being a company as defined in
this Act), which the Central Government may, by notification,
specify in this behalf.

(c) the business entity located in the taxable territory who is litigant,
applicant or petitioner, as the case may be, shall be treated as the
person who receives the legal services for the purpose of this
notification.

(d) the words and expressions used and not defined in this notification
but defined in the Central Goods and Services Tax Act, the
Integrated Goods and Services Tax Act, and the Union Territory
Goods and Services Tax Act shall have the same meanings as
assigned to them in those Acts.

(e) Limited Liability Partnership formed and registered under the
provisions of the Limited Liability Partnership Act, 2008 shall
also be considered as a partnership firm or a firm.

(f) Insurance agent means an insurance agent licensed under
section 42 of the Insurance Act, 1938 who receives agrees to
receive payment by way of commission or other remuneration
in consideration of his soliciting or procuring insurance
business including business relating to the continuance,
renewal or revival of policies of insurance [Section 2(10) of the
Insurance Act, 1938].

(g) Renting of immovable property means allowing, permitting or
granting access, entry, occupation, use or any such facility,
wholly or partly, in an immovable property, with or without
the transfer of possession or control of the said immovable
property and includes letting, leasing, licensing or other
similar arrangements in respect of immovable property.

© The Institute of Chartered Accountants of India

3.20 INDIRECT TAXES

Person liable to pay tax on GTA service

Under GTA service, the person who pays or is liable to pay freight for the
transportation of goods by road in goods carriage, located in the taxable
territory shall be treated as the person who receives the service for the
purpose of this notification.

GTA services are taxable:

(i) @ 5% (2.5% CGST+2.5% SGST/UTGST) provided GTA has not taken the Input
Tax Credit (ITC) on goods and services used in supplying GTA service or

(ii) @ 12% (6% CGST+6% SGST/UTGST) provided GTA pays GST under forward
charge. There is no restriction on availing ITC on goods and
services used in supplying GTA service by GTA.

Recipient of GTA service •Person who pays or is liable to pay
freight

Person liable to pay
tax under GTA service

GTA paying GST @ GTA paying GST @
5% 12%

Recipient is one of the Recipient is other than
Specified Recipients
Specified Recipients

(Unregistered Individual end consumer)

Reverse charge Forward
charge

Person liable to pay GST is Exempt Person liable to
such recipient from GST pay GST is GTA

© The Institute of Chartered Accountants of India

CHARGE OF GST 3.21

Tax payable by the electronic commerce operator on notified services

Electronic Commerce Operators (ECO) 2 display products as well as
services which are actually supplied by some other person to the consumer,
on their electronic portal. The consumers buy such goods/ services through
these portals. On placing the order for a particular product/ service, the
actual supplier supplies the selected product/ service to the consumer. The
price/ consideration for the product/ service is collected by the ECO from
the consumer and passed on to the actual supplier after the deduction of
commission by the ECO.

The Government may, on the recommendations of the GST
Council, notify specific categories of services the tax
[CGST/SGST/IGST] on intra-State supplies of which shall be
paid by the electronic commerce operator (ECO) if such
services are supplied through it. Few services have been
so notified. For instance, service by way of transportation of passengers by a
radio-taxi, motorcab, maxicab and motor cycle.

GST Rates prescribed for various goods: Broadly, six rates of CGST have
been notified for goods, viz., 0.125%, 1.5%, 2.5%, 6%, 9% and 14%. Some
items have been kept at Nil rate3. SGST/ UTGST at the equivalent rate is
also leviable. With regard to IGST, broadly six rates have been notified for
goods, viz., 0.25%, 3%, 5%, 12%, 18% and 28%4

GST Rates prescribed for various services: Broadly, four rates of CGST
have been notified for services, viz., 2.5%, 6%, 9% and 14%. Equivalent rate
of SGST/ UTGST will also be levied. For IGST, four rates have been notified
for services, viz., 5%, 12%, 18% and 28%. For certain specified goods and
services, nil rate of tax has been notified.

2 Detailed provisions relating to Electronic Commerce Operator shall be discussed at Final
level.
3 Students may refer the CBIC website for the complete Schedule of CGST Rates for goods,
for knowledge purposes.
4 Students may refer the CBIC website for the complete Schedule of IGST Rates for goods for
knowledge purposes.

© The Institute of Chartered Accountants of India

3.22 INDIRECT TAXES

A new Scheme of Classification of Services5 has been devised wherein the
services of various descriptions have been classified under various sections,
headings and groups.

Each group consists of various Service Codes (Tariff). Chapters referred are
the Chapters of the First Schedule to the Customs Tariff Act, 19756.

Notification No. 11/2017 CT (R) dated 28.06.2017 has notified the
different rates of the CGST to be levied on the intra-State supplies of
services subject to the condition(s) specified therein, if any. Specific rates
have been prescribed for various services.

For instance, as already discussed, tax rate prescribed for GTA service is 5%
(CGST @ 2.5% and SGST @ 2.5%) subject to the condition that credit of
input tax charged on goods or services used in supplying the service has
not been taken. Similarly, tax rate for restaurant service is 5% without any
input tax credit7. Services not covered under any specific heading are
taxed at the rate of 18% (CGST @ 9% and SGST @9%).

Classification of cut pieces of fabrics under GST (Unstitched Salwar Suits)

It has been represented that before becoming readymade articles or an
apparel, the fabric is cut from bundles or thans and sold in that
unstitched state. The consumers buy these sets or pieces and get it
stitched to their shape and size. Fabrics are classifiable under chapters
50 to 55 of the First Schedule to the Customs Tariff Act, 1975 on the basis
of their constituent materials.

Mere cutting and packing of fabrics into pieces of different lengths from
bundles or thans, will not change the nature of these goods and such
pieces of fabrics would continue to be classifiable under the respective
heading as the fabric [Circular No. 13/13/2017 GST dated 27.10.2017].

5 Students may refer the Scheme of Classification of Services from CBIC website for
knowledge purposes.
6 The provisions relating to Customs Act and Customs Tariff Act will be discussed at Final
Level.
7 GST rate on supply of food and/or drinks by the Indian Railways or IRCTC (Indian Railways
Catering and Tourism Corporation Ltd.) or their licensees, whether in trains or at platforms
(static units), will be 5% without ITC.

© The Institute of Chartered Accountants of India

CHARGE OF GST 3.23

5. COMPOSITION LEVY [SECTION 10 OF THE CGST ACT]

STATUTORY PROVISIONS

Section 10 Composition levy

Sub-section Particulars

(1) Notwithstanding anything to the contrary contained in this Act but
subject to the provisions of sub-sections (3) and (4) of section 9, a
registered person, whose aggregate turnover in the preceding
financial year did not exceed fifty lakh rupees, may opt to pay, in
lieu of the tax payable by him, an amount calculated at such rate
as may be prescribed, but not exceeding,––

a one per cent. of the turnover in State or turnover in Union
territory in case of a manufacturer

b two and a half per cent. of the turnover in State or turnover
in Union territory in case of persons engaged in making
supplies referred to in clause (b) of paragraph 6 of
Schedule II, and

c half per cent. of the turnover in State or turnover in Union
territory in case of other suppliers

subject to such conditions and restrictions as may be prescribed.

Provided that the Government may, by notification, increase the
said limit of fifty lakh rupees to such higher amount, not exceeding
one crore rupees, as may be recommended by the Council.

(2) The registered person shall be eligible to opt under sub-section
(1), if––

(a) he is not engaged in the supply of services other than
supplies referred to in clause (b) of paragraph 6 of
Schedule II

(b) he is not engaged in making any supply of goods which are

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3.24 INDIRECT TAXES

not leviable to tax under this Act

(c) he is not engaged in making any inter-State outward supplies
of goods

(d) he is not engaged in making any supply of goods through an
electronic commerce operator who is required to collect tax at
source under section 52; and

(e) he is not a manufacturer of such goods as may be notified by the
Government on the recommendations of the Council

Provided that where more than one registered persons are having
the same Permanent Account Number (issued under the Income-
tax Act, 1961), the registered person shall not be eligible to opt for
the scheme under sub-section (1) unless all such registered persons
opt to pay tax under that sub-section.

(3) The option availed of by a registered person under sub-section (1)
shall lapse with effect from the day on which his aggregate turnover
during a financial year exceeds the limit specified under sub-section
(1).

(4) A taxable person to whom the provisions of sub-section (1) apply
shall not collect any tax from the recipient on supplies made by
him nor shall he be entitled to any credit of input tax.

(5) If the proper officer has reasons to believe that a taxable person
has paid tax under sub-section (1) despite not being eligible, such
person shall, in addition to any tax that may be payable by him
under any other provisions of this Act, be liable to a penalty and
the provisions of section 73 or section 74 shall, mutatis mutandis,
apply for determination of tax and penalty.

ANALYSIS

Overview of the Scheme
The objective of composition scheme is to bring simplicity and to reduce
the compliance cost for the small taxpayers. Small taxpayers with an

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CHARGE OF GST 3.25

aggregate turnover in a preceding financial year up to ` 1 crore shall be
eligible for composition levy.

Suppliers opting for composition levy need not worry about the
classification of their goods or services or both, the rate of GST applicable
on the same, etc. They are not required to raise any tax invoice, but simply
need to issue a Bill of Supply [Discussed in detail in Chapter-8: Tax Invoice,
Credit and Debit Notes] wherein no tax will be charged from the recipient.

At the end of a quarter, the registered
person opting for composition levy would
pay a certain specified percentage of his
turnover of the quarter as tax, without
availing the benefit of input tax credit.

Persons making inter-State supplies of goods/making supplies of goods
through e-commerce operators who are required to collect tax at source
shall not be eligible for composition scheme. The provisions relating to
composition levy are contained in section 10 of CGST Act, 2017 and
Chapter-II [Composition Rules] of Central Goods and Services Tax (CGST)
Rules, 2017. The said rules have been incorporated at the relevant places.

Turnover limit for Composition Levy [Section 10(1)]

Section 10 of the CGST Act provides the
turnover limit of ` 50 lakh for composition
levy. However, proviso to section 10(1)
empowers the Government to increase the
said limit of ` 50 lakh upto ` 1 crore, on the
recommendation of the Council.

In view of said power of the Government to
increase the turnover limit for Composition
Levy as granted by proviso to section 10(1), the turnover limit for
Composition Levy for CGST and SGST purposes for all eligible registered
persons has been increased from ` 50 lakh to ` 1 crore vide
Notification No. 8/2017 CT dated 27.06.2017 as amended.

However, the said notification further stipulates that the turnover limit
for composition levy shall be ` 75 lakh in respect of 9 of the Special
Category States namely:

© The Institute of Chartered Accountants of India

3.26 INDIRECT TAXES

Special Category States

Arunachal Pradesh Mizoram

Assam Nagaland

Manipur Sikkim

Meghalaya Tripura

Himachal Pradesh

*In case of Uttarakhand and Jammu and Kashmir, the turnover limit
will be ` 1 crore.

In other words, if the aggregate turnover of a supplier in a State/UT
other than Special Category States (except Uttarakhand and Jammu and
Kashmir) is upto ` 1 crore in the preceding financial year, said supplier is
eligible for composition scheme.

While computing the threshold limit of ` 1 crore, inclusions in
and exclusions from ‘aggregate turnover’ are as follows

Excludes

Includes --CGST
Value of all outward --SGST
supplies --UTGST
--Taxable supplies --IGST
--Cess
--Exempt supplies --Value of inward supplies
--Exports on which tax is payable
--Inter-State supplies under reverse charge.

of persons having the
same PAN be computed
on all India basis.

A dealer ‘X’ has two offices in Delhi. In order to determine
whether ‘X’ is eligible to avail benefit of the composition
scheme, turnover of both the offices would be taken into
account and if the same does not exceed ` 1 crore, X can opt to

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CHARGE OF GST 3.27

avail the composition levy scheme (subject to fulfilment of other prescribed
conditions).

Who can opt for the composition levy scheme? [Section 10(1) read
with rule 7]

A registered person, whose aggregate turnover in the preceding FY does
not exceed ` 1 crore, may opt to pay an amount calculated at the
prescribed rates [mentioned in table below] during the current FY, in lieu
of the tax payable by him.

S Category of registered persons Rate of tax*
No.

1 Manufacturers, other than manufacturers of ½ %8 of the turnover

such goods as may be notified by the in the State/Union

Government, i.e. ice cream, pan masala and territory**

tobacco.

2 Suppliers making supplies referred to in 2½ %9 of the
clause (b) of paragraph 6 of Schedule II turnover in the
[Restaurant service]
State/Union
territory**

3 Any other supplier eligible for composition ½ %10 of the

levy under section 10 of CGST Act and turnover of taxable

Chapter-II [Composition Rules] of Central supplies of goods in

Goods and Services Tax (CGST) Rules, 2017 the State or Union

territory**

Turnover in State/ turnover in Union territory means the aggregate
value of all taxable supplies (excluding the value of inward supplies on
which tax is payable by a person on reverse charge basis) and exempt
supplies made within a State or Union territory by a taxable person, exports
of goods or services or both and inter-State supplies of goods or services or
both made from the State or Union territory by the said taxable person but

8 Effective rate 1% (CGST+ SGST/UTGST)
9 Effective rate 5% (CGST+ SGST/UTGST)
10 Effective rate 1% (CGST+ SGST/UTGST)

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3.28 INDIRECT TAXES

excludes central tax, State tax, Union territory tax, integrated tax and cess
[Section 2(112) of the CGST Act, 2017].

Intimation of opting for composition levy [Rules 3 & 4]

(i) Intimation by person applying for registration:
Any person who is not registered and applies for
registration may give an option to pay tax under
composition levy in Part B of the registration form, viz., FORM
GST REG-01. The same shall be considered as an intimation to
pay tax under Composition Levy. Such intimation shall be
considered only after the grant of registration to the applicant and
his option to pay tax under composition levy shall be effective
from the date from which registration is effective.

(ii) Intimation by a registered person: A registered person who opts to
pay tax under composition levy scheme shall electronically file an
intimation in prescribed form on the Common Portal
[www.gst.gov.in], prior to the commencement of the FY for which
said option is exercised.

He shall also furnish the statement in prescribed form in
accordance with the provisions of rule 44(4) of CGST Rules, 2017
[Discussed in detail in Chapter 6 – Input Tax Credit] within 60 days
from the commencement of the relevant FY. Any intimation in
respect of any place of business in a State/UT shall be deemed to be
an intimation in respect of all other places of business registered on
the same PAN.

Details of stock to be furnished: Any person who files such
intimation shall furnish the details of:

 stock, including the inward supply of goods received from
unregistered persons,

 held by him on the day preceding the date from which he opts
for composition levy,

 electronically, in prescribed form, on the common portal,

 within a period of 90 days

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CHARGE OF GST 3.29

 from the date on which the option for composition levy is
exercised or within such further period as may be extended by
the Commissioner in this behalf.

The option to pay tax under composition levy shall be effective from
the beginning of the FY.

Conditions and restrictions for composition levy [Rule 5]

Person opting for composition levy has to comply with the following
conditions:

 he is neither a casual taxable person nor a non-resident taxable
person [Concept of casual taxable person and non-resident taxable
person has been discussed in detail in Chapter 7: Registration].

 the goods held in stock by him have not been purchased from an
unregistered supplier and where purchased, he pays the tax under
reverse charge under section 9(4).

 he shall pay tax under section 9(3)/9(4) (reverse charge) on inward
supply of goods or services or both.

 he was not engaged in the manufacture of goods as notified under
section 10(2)(e), during the preceding FY. The following goods have
been hereby notified vide Notification No. 8/2017 CT dated
27.06.2017:

Tariff item, subheading, Description
heading or Chapter*

2105 00 00 Ice cream and other edible ice, whether
or not containing cocoa

2106 90 20 Pan masala

24 All goods, i.e. Tobacco and manufactured
tobacco substitutes

* as specified in the First Schedule to the Customs Tariff Act, 1975

 he shall mention the words “composition taxable person, not eligible to
collect tax on supplies” at the top of the bill of supply issued by him; and

© The Institute of Chartered Accountants of India

3.30 INDIRECT TAXES

 he shall mention the words “composition taxable person” on every notice
or signboard displayed at a prominent place at his principal place of
business and at every additional place or places of business.

Who are not eligible to opt for composition scheme? [Section 10(2)]

Supplier of Supplier of goods which Supplier of inter-
are not taxable under the State outward
services other CGST Act/SGST Act/ UTGST supplies
Act of goods
than supplier of

food articles.

Person supplying Manufacturer of
goods through an
electronic commerce icecream, panmasala
operator
and tobacco



There is no restriction on
Composition Supplier to
procure goods from
suppliers located in other
States.

Person providing exempted service is eligible for composition scheme

(i) A person supplies goods and/or services referred to in clause (b) of
paragraph 6 of Schedule II of the said Act (restaurant service) and
also supplies any exempt services including services by way of
extending deposits, loans or advances in so far as the consideration
is represented by way of interest or discount, the said person shall
not be ineligible for the composition scheme subject to the fulfilment
of all other conditions specified therein.

(ii) Further, while computing aggregate turnover of such person in order
to determine his eligibility for composition scheme, value of supply of
any exempt services including services by way of extending deposits,
loans or advances in so far as the consideration is represented by way

© The Institute of Chartered Accountants of India

CHARGE OF GST 3.31

of interest or discount, shall not be taken into account [Order No.
01/2017 CT dated 13.10.2017].

Validity of composition levy [Section 10(3) read with rule 6]

The option exercised by a registered person to pay amount under
composition levy shall remain valid so long as he satisfies all the
conditions mentioned in the said section and these rules.

The option to pay tax under composition scheme lapses from the day
on which his aggregate turnover during the FY exceeds the specified
limit (` 1 crore/ ` 75 lakh).

Such person is required to pay normal tax under section 9(1) from the
day he ceases to satisfy any of the conditions prescribed for
composition levy. He shall issue tax invoice for every taxable supply
made thereafter.

Further, he is required to file an intimation for withdrawal from the
scheme in prescribed form within 7 days of the occurrence of such event.

However, such person shall be allowed to avail the input tax credit in
respect of the stock of inputs and inputs contained in semi-finished or
finished goods held in stock by him and on capital goods held by him
on the date of withdrawal and furnish a statement, within 30 days of
withdrawal of the option, containing the details of such stock held in
prescribed form on the common portal.

A person availing composition scheme during a financial year
crosses the turnover of ` 1 crore on 9th of December. The option
availed shall lapse from the day on which his aggregate turnover
during the financial year exceeds ` 1 crore, i.e. on 9th December in this case.

Composition scheme to be adopted uniformly by all the registered
persons having the same PAN [Proviso to section 10(2)]

All registered persons having the same Permanent Account Number (PAN)
have to opt for composition scheme. If one such registered person opts for
normal scheme, others become ineligible for composition scheme.

A dealer ‘X’ has two offices in Delhi and is eligible for composition
levy. If ‘X’ opts for the composition scheme, both the offices
would pay taxes under composition scheme and abide by all the
conditions as may be prescribed for the composition scheme.

© The Institute of Chartered Accountants of India

3.32 INDIRECT TAXES

Composition scheme supplier cannot collect tax [Section 10(4)]

Taxable person opting for the composition scheme shall not collect tax from
the recipient on supplies made by him. It implies that a composition scheme
supplier cannot issue a tax invoice.

Composition scheme supplier cannot enter into credit chain [Section
10(4)]

Taxable person opting for the composition scheme is not entitled to any
credit of input tax.

Imposition of penalty in case of irregular availment of the
composition scheme [Section 10(5) read with rule 6(4) and 6(5)]

If a taxable person has paid tax under the composition scheme though
he was not eligible for the scheme, the person would be liable to
penalty and the provisions of section 73 or 74 of the CGST Act shall be
applicable for determination of tax and penalty.

Further, where the proper officer has reasons to believe that the
registered person was not eligible to pay tax under composition levy
or has contravened the provisions of the Act/provisions of this
Chapter, he may issue a show cause notice to such person in
prescribed form.

Upon receipt of the reply to such show cause notice from the
registered person in prescribed form, the proper officer shall issue an
order in prescribed form within 30 days of the receipt of such reply,
either accepting the reply, or denying the option to pay tax under
composition levy from the date of the option or from the date of the
event concerning such contravention, as the case may be.

ILLUSTRATION

Taxpayer ‘A’ is a manufacturer having one unit – A1 in UP and another unit – A2 in MP.
Total turnover of two units in last FY was ` 85 lakh (` 55 lakh + ` 30 lakh). Turnover of
Unit A1 and A2 in the second quarter of this financial year was ` 5 lakh and ` 10 lakh
respectively. Compute the amount payable under composition levy by Taxpayer ‘A’.

ANSWER

Unit Location Turnover in Turnover in 2nd Total tax
previous FY quarter of this FY (@1%)

© The Institute of Chartered Accountants of India

CHARGE OF GST 3.33

A1 U.P. ` 55 lakh ` 5 lakh ` 5,000
A2 M.P. ` 30 lakh ` 10 lakh ` 10,000
Aggregate turnover ` 85 lakh ` 15 lakh

8. LET US RECAPITULATE

1. Extent & Commencement of CGST Act/ SGST Act/ UTGST Act/ IGST Act

Applicability CGST SGST UTGST IGST

States of India Intra-State supply Inter-State
Union Territories with supply

State Legislature
Union Territories

without State
Legislature

2. Levy and collection of CGST/IGST

Particulars CGST IGST

Levied on Intra-State supplies of Inter-State supplies of
goods/services/both goods/services/both

Collected and paid by Taxable person

Supply outside Alcoholic liquor for human consumption

purview of tax

Value for levy Transaction value under section 15 of the CGST Act

Rates Rates as notified by IGST rate= CGST rate +

Government. SGST rate (more or less)

Maximum rate of Maximum rate of IGST

CGST will be 20%. will be 40%.

© The Institute of Chartered Accountants of India

3.34 INDIRECT TAXES

Supplies on which tax petroleum crude
to be levied w.e.f. a high speed diesel
notified date motor spirit (commonly known as petrol)
natural gas and
aviation turbine fuel

Tax payable under Supply of goods or services or both, notified
reverse charge by the Government on the recommendations
of the GST Council.

Supply of taxable goods or services or both
by an unregistered supplier to a registered
person

Tax payable by the The Government may notify specific categories of
electronic commerce services the tax on supplies of which shall be paid
operator by electronic commerce operator (ECO) as if such
services are supplied through it.

3. Composition levy [Section 10]

Composition levy Advantages

•An option for specified •Low rate of tax
categories of small •Hassel free simple procedures for such taxpayers
taxpayers to pay GST at a •Simple calculation of tax based on turnover
very low rate on the •A very simple quarterly return
basis of turnover.

Composition Scheme - Procedure

Category of persons How to exercise Effective date of

option composition levy

New registration under Intimation in the From the effective
GST registration form date of registration

Registered person opting Intimation in Beginning of the

for composition levy prescribed form financial year

© The Institute of Chartered Accountants of India

CHARGE OF GST 3.35
Composition levy

Conditions Non-eligible Conditions and
supplies restrictions

Aggregate Turnover Supplier of services other He is neither a casual
(AT) ≤ ` 1 crore during than supplier of food taxable person nor a non-
resident taxable person.
the FY. In Special
Category States, AT articles.

≤ ` 75 lakh except

Uttarakhand & J&K Supplier of goods which Stock has not been purchased
(≤ ` 1 crore). are not taxable under the from an unregistered supplier,
where purchased tax paid
Tax is not CGST Act/SGST under reverse charge.

Act/UTGST Act.

collected

from recipient of Supplier of inter-State
supply outward supplies of goods He shall pay tax under

section 9(3)/9(4) (reverse
charge) on inward supplies

Input tax credit is

not availed Person supplying goods through He is not engaged in
an electronic commerce
manufacturer of notified
operator
goods

Composition Scheme if Manufacturer of certain
goods as may be notified
availed shall include all Words “Composition
taxable person, not
registered persons by the Government
eligible to collect tax on
having same PAN
supplies” is mentioned at

the top of the bill of supply

Words “composition

taxable person” displayed

at prominent places

© The Institute of Chartered Accountants of India

3.36 INDIRECT TAXES

Composition Rates

Category of registered persons Rate

Manufacturer 1 % (½% CGST +½%
SGST/UTGST)

Supplier of food 5%
Traders 1%

9. TEST YOUR KNOWLEDGE

1. What is the maximum rate of CGST prescribed under CGST Act?
(a) 20%
(b) 28%
(c) 24%
(d) 40%

2. Which of the following taxes levied on intra-State supply?
(a) CGST
(b) SGST/UTGST
(c) Both (a) and (b)
(d) IGST

3. What is the threshold limit of turnover in the preceding financial year to be
eligible for composition levy in Delhi?
(a) ` 50 lakh
(b) ` 75 lakh
(c) ` 80 lakh
(d) ` 1 crore

4. Which of the following is not included in aggregate turnover?
(a) Exempt supplies of goods or services or both
(b) Export of goods or services or both

(c) Inter-State supply of goods or services or both

© The Institute of Chartered Accountants of India

CHARGE OF GST 3.37

(d) Value of inward supplies on which tax is paid under reverse charge

5. IGST is levied on:
(a) Inter-State supplies
(b) Intra-State Supplies
(c) Both (a) and (b)
(d) None of the above

6. _________________ is levied on the import of goods and/or services.
(a) IGST
(b) CGST and SGST
(c) CGST and UTGST
(d) None of the above

7. The maximum rate of IGST can be:
(a) 20%
(b) 30%
(c) 40%
(d) None of the above

8. On supply of which of the following items, GST shall be levied with effect from
such date as may be notified by the Government on the recommendations of
the Council:
(a) Petroleum crude
(b) Alcoholic liquor for human consumption
(c) Both (a) and (b)
(d) None of the above

9. GST is payable by the recipient under reverse charge on:
(a) Sponsorship services
(b) Transport of goods by rail
(c) Transport of passengers by air
(d) All of the above

10. State person liable to pay GST in the following independent cases provided
recipient is located in the taxable territory:

© The Institute of Chartered Accountants of India

3.38 INDIRECT TAXES

(a) Services provided by an arbitral tribunal to any business entity.

(b) Sponsorship services provided by a company to an individual.

(c) Renting of immovable property service provided by the Central
Government to a business entity.

11. A person availing composition scheme in Haryana during a financial year
crosses the turnover of ` 1 crore during the course of the year i.e. he crosses
the turnover of ` 1 crore in December? Will he be allowed to pay tax under

composition scheme for the remainder of the year, i.e. till 31st March?

12. Determine whether the supplier in the following cases are eligible for
composition levy provided their turnover in preceding year does not exceed `

1 crore:

(i) Mohan is engaged in providing only legal services in Rajasthan and
is registered in the same State.

(ii) Sugam Manufacturers has registered offices in Punjab and Haryana
and supplies goods in neighbouring States.

13. Mohan Enterprises has two registered business verticals in Delhi. Its
aggregate turnover for the preceding year for both the business verticals was
` 90 lakh. It wishes to pay tax under composition levy for one of the vertical
in the current year while under normal levy for other vertical. You are
required to advice Mohan Enterpises whether he can do so?

10. ANSWERS/HINTS

1. (a) 2. (c) 3. (d) 4. (d) 5. (a) 6. (a) 7. (c)

8. (a) 9. (a)

10. (a) Since GST on services provided or agreed to be provided by an
arbitral tribunal to any business entity located in the taxable territory
is payable under reverse charge, in the given case, GST is payable by
the recipient - business entity.

(b) GST on sponsorship services provided by any person to any body
corporate or partnership firm located in the taxable territory is
payable under reverse charge. Since in the given case, services
have been provided to an individual, reverse charge provisions will
not be attracted. GST is payable under forward charge by the
supplier – company.

© The Institute of Chartered Accountants of India

CHARGE OF GST 3.39

(c) GST on services provided or agreed to be provided by the Central
Government, State Government, Union Territory, or local authority to
any business entity located in the taxable territory is payable under
reverse charge. However, renting of immovable property service is
an exception to it. Therefore, in the given case, reverse charge
provisions will not be attracted. GST is payable under forward
charge by the supplier – Central Government.

11. No. The option to pay tax under composition scheme lapses from the day
on which the aggregate turnover of the person availing composition
scheme during the financial year exceeds the specified limit (` 1 crore). He is
required to file an intimation for withdrawal from the scheme in prescribed
form within 7 days from the day on which the threshold limit has been
crossed.

12. (i) A supplier of services engaged in the supplies other than the
supplies referred to in clause (b) of paragraph 6 of Schedule II of
CGST Act i.e. supply by way of or as part of any service or in any other
manner whatsoever, of goods, being food or any other article for
human consumption or any drink, is not eligible for composition levy.
Since Mohan provides legal services, he is not eligible for composition
scheme.

(ii) Since supplier of inter-State outward supplies of goods is not
eligible for composition levy, Sugam Manufacturers is not eligible
for composition levy.

13. A registered person with an aggregate turnover in a preceding financial year
up to ` 1 crore is eligible for composition levy in Delhi. Since the aggregate
turnover of Mohan Enterprises does not exceed ` 1 crore, it is eligible for
composition levy in the current year. However, all registered persons
having the same Permanent Account Number (PAN) have to opt for
composition scheme. If one such registered person opts for normal scheme,
others become ineligible for composition scheme. Thus, Mohan Enterprises
either have to opt for composition levy for both the verticals or under

normal levy for both the verticals.

© The Institute of Chartered Accountants of India

Exemption4CHAPTER
from GST in
EXEMPTIONS FROM GST
India
LEARNING OUTCOMES

After studying this Chapter, you will be able to –
 describe the power of the Government to grant exemption

from CGST/IGST.
 provide an overview of the goods exempt from GST.
 identify and analyse various services exempt from GST.
CHAPTER OVERVIEW

Power of the Government to grant exemption from tax
Goods exempt from tax
Services exempt from tax

© The Institute of Chartered Accountants of India

4.2 INDIRECT TAXES

1. INTRODUCTION

When a supply of goods and/or services falls within the purview of charging
section, such supply is chargeable to GST. However, for determining the
liability to pay the tax, one needs to further check whether such supply of
goods and/or services are exempt from tax.

Exempt supply has been defined as supply of any
goods or services or both which attracts nil rate of
tax or which may be wholly exempt from tax and
includes non-taxable supply [Section 2(47) of the
CGST Act, 2017]. Non-taxable supply means a
supply of goods or services or both which is not leviable to tax under CGST
Act or under the IGST Act [Section 2(78) of the CGST Act, 2017].

Power to grant exemption from GST has been granted vide section 11 of the
CGST Act and vide section 6 of the IGST Act. State GST laws also contain
identical provisions granting power to exempt SGST. Under GST, essential
goods/services, i.e. public consumption products/services, have been
exempted. Items such as unbranded atta/maida/besan, unpacked food grains,
milk, eggs, curd, lassi and fresh vegetables are among the items exempted
from GST. Further, essential services like health care services, education
services, etc. have also been exempted.

In this chapter, we shall discuss the power to grant exemption from tax under
CGST Act/IGST Act, list of services exempt from GST in detail and an overview
of the goods exempt from tax.

2. POWER TO GRANT EXEMPTION FROM TAX [SECTION 11
OF THE CGST ACT/SECTION 6 OF IGST ACT]

STATUTORY PROVISIONS

Section 11 Power to grant exemption from ta x

Sub-section Pa rticula rs

(1) Where the Government is satisfied that it is necessary in the
public interest so to do, it may, on the recommendations of the

© The Institute of Chartered Accountants of India

EXEMPTIONS FROM GST 4.3

Council, by notification, exempt generally, either absolutely
or subject to such conditions as may be specified therein,
goods or services or both of any specified description from the
whole or any part of the tax leviable thereon with effect from
such date as may be specified in such notification

(2) Where the Government is satisfied that it is necessary in the
public interest so to do, it may, on the recommendations of
the Council, by special order in each case, under
circumstances of an exceptional nature to be stated in such
order, exempt from payment of tax any goods or services or
both on which tax is leviable.

(3) The Government may, if it considers necessary or expedient so
to do for the purpose of clarifying the scope or applicability of
any notification issued under sub-section (1) or order issued
under sub-section (2), insert an explanation in such
notification or order, as the case may be, by notification at any
time within one year of issue of the notification under sub-
section (1) or order under sub-section (2), and every such
explanation shall have effect as if it had always been the part
of the first such notification or order, as the case may be.

Explanation––For the purposes of this section, where an exemption in respect
of any goods or services or both from the whole or part of the tax leviable
thereon has been granted absolutely, the registered person supplying such
goods or services or both shall not collect the tax, in excess of the effective
rate, on such supply of goods or services or both.

ANALYSIS

(i) Exemption from payment of tax: The Government is empowered to grant
exemption from tax, if it is necessary in public interest so to do, on
recommendation of the GST council, by way of issuance of-

© The Institute of Chartered Accountants of India

4.4 INDIRECT TAXES
I. Notification

The Government

may generally

exempt supply of on BY
recommendation NOTIFICATION
goods and/or of the GST council

services of any

specified

description

with effect from either absolutely or
subject to such
such date as conditions as may
be specified in the
may be wholly/partly notification

specified in BY SPECIAL on
ORDER recommendati
such on of the GST

notification. Council

II. Special order

The Government

may exempt any

goods and/or

services on which

tax is leviable from

payment of tax

under in the public
circumstances of an interest.
exceptional nature
to be stated in such
order

(ii) No need to pay tax on goods and/or services on which absolute
exemption granted: Where an exemption in respect of goods and/or
services has been granted absolutely, the registered person supplying such
goods and/or services shall not collect tax on such goods and/or services, in
excess of the effective rate.

© The Institute of Chartered Accountants of India

EXEMPTIONS FROM GST 4.5

(iii) Explanation inserted within 1 year to have retrospective effect: The
Government can issue an explanation within 1 year of issue of notification/
order of exemption (from payment of tax) or notification of exemption and
such explanation shall have effect as if it was there when first such
notification or order was issued, i.e. explanation so inserted would have
retrospective effect.

Similar provisions granting power to exempt IGST have been
provided under section 6 of the IGST Act.

3. GOODS EXEMPT FROM TAX

A list of items have been notified under section
11(1) of the CGST Act, 2017/ section 6(1) of the
IGST Act, 2017. These items have been exempted
from whole of the tax.

Since GST is a tax for common man, everyday
items used by the common man have been
included in the list of exempted items.

Items such as unbranded atta/maida/besan, unpacked food grains, milk, eggs,
curd, lassi and fresh vegetables are among the items exempted from GST.

Some of the examples of the goods exempted from tax have been provided
herein1:

Live fish (0301) Fresh Milk (0401) Potatoes (0701)

1 Students may go through the complete list of goods exempt from GST on CBIC website –
www.cbic.gov.in, for knowledge purposes.

© The Institute of Chartered Accountants of India

4.6 INDIRECT TAXES

Grapes (0806) Indian National Plastic Bangles (3926)
Flag (63)

4. LIST OF SERVICES EXEMPT FROM TAX

I. SPECIFIC SERVICES EXEMPT FROM CGST/IGST

Notification No. 12/2017 CT (R) dated 28.06.20172 (hereafter referred to as
“the Notification”) unless otherwise specified, has exempted the various
services wholly from CGST/IGST respectively. Each of the entries of the
exemption notification have been discussed below:

1. Charitable and religious activity related services

Entry Description of services
No.3

1 Services by an entity registered under section 12AA of the Income-tax
Act, 1961 by way of charitable activities.

13 Services by a person by way of-

(a) conduct of any religious ceremony;

(b) renting of precincts of a religious place meant for general public,
owned or managed by an entity registered as a charitable or
religious trust under section 12AA of the Income-tax Act, 1961 or a
trust or an institution registered under section 10(23C)(v) of the
Income-tax Act or a body or an authority covered under section

2 Exemption from IGST has been granted to various services vide Notification No. 9/2017 IT (R)
dated 28.06.2017. All the services exempted from CGST have also been exempted from
IGST. Apart from these, there are few additional services which have been exempted only
under IGST law. Such services will be discussed at the Final Level.
3 Entry Nos. mentioned herein correspond to entries in Notification No. 12/2017 CT (R)
dated 28.06.2017. However, these entry no.s have been given only for reference purposes
and are not relevant for examination purpose.

© The Institute of Chartered Accountants of India

EXEMPTIONS FROM GST 4.7

10(23BBA) of the said Income-tax Act.
However, nothing contained in entry (b) of this exemption shall apply
to-
(i) renting of rooms where charges are ` 1,000 or more per day;
(ii) renting of premises, community halls, kalyanmandapam or open

area, and the like where charges are ` 10,000 or more per day;
(iii) renting of shops or other spaces for business or commerce where

charges are ` 10,000 or more per month.

60 Services by a specified organisation in respect of a religious
pilgrimage facilitated by the Government of India, under bilateral
arrangement.

80 Services by way of training or coaching in recreational activities
relating to-
(a) arts or culture, or
(b) sports by charitable entities registered under section 12AA of the
Income-tax Act.

ANALYSIS

A. SERVICES PROVIDED BY CHARITABLE/RELIGIOUS TRUST

Entry 1 of the Notification exempts services provided by an entity registered
under section 12AA of the Income-tax Act, 1961 by way of charitable activities.
Thus, in order to claim exemption under Entry 1 of the Notification, following two
conditions must be satisfied:-

(i) The entity is registered under section 12AA of the Income tax Act, 1961, and

(ii) The entity carries out one or more of the specified charitable activities.

There could be many services provided by charitable and religious trusts -
registered under section 12AA of the Income-tax Act, 1961 - which are not
covered by the definition of charitable activities and hence, such services would
attract GST. For instance, grant of advertising rights to a person on the premises
of the charitable/religious trust or on publications of the trust, or granting
admission to events, functions, celebrations, shows against admission tickets or
fee etc. would attract GST.

© The Institute of Chartered Accountants of India

4.8 INDIRECT TAXES

Let us understand the meaning of term ‘charitable activities’. The term
‘charitable activities’ mean activities relating to-
(i) PUBLIC HEALTH by way of-

(A) care or counseling of

(I) terminally ill persons or persons with severe physical or mental
disability;

(II) persons afflicted with HIV or AIDS;

(III) persons addicted to a dependence-forming substance such as
narcotics drugs or alcohol; or

(B) public awareness of preventive health, family planning or prevention of
HIV infection;

(ii) ADVANCEMENT OF RELIGION, spirituality or yoga;
(iii) ADVANCEMENT OF EDUCATIONAL PROGRAMMES/SKILL DEVELOPMENT

relating to,-

(A) abandoned, orphaned or homeless children;

(B) physically or mentally abused and traumatized persons;

(C) prisoners; or

(D) persons over the age of 65 years residing in a rural area;

(iv) PRESERVATION OF ENVIRONMENT including watershed, forests & wildlife.
Management of educational institutions by charitable trusts

 Activities of schools, colleges or any other educational institutions run by
charitable trusts by way of education or skill development of abandoned,
orphans, homeless children, physically or mentally abused persons,
prisoners or persons over age of 65 years or above residing in a rural area,
will be considered as charitable activities and income from such supplies will
be wholly exempt from GST.

 The term rural area means the area comprised in a village as defined in land
revenue records, excluding the area under any municipal committee,
municipal corporation, town area committee, cantonment board or notified
area committee; or any area that may be notified as an urban area by the
Central Government or a State Government.

© The Institute of Chartered Accountants of India

EXEMPTIONS FROM GST 4.9

 Activities of a school, college or an institution run by a trust which do not
come within the ambit of charitable activities will not be exempt under
Entry 1 of the Notification. However, such activities may be exempt under
Entry 66 of the Notification [discussed later in this chapter] provided the
school, college or institution qualifies as an 'educational institution'.

Hostel accommodation provided by trusts

 Hostel accommodation services provided by trusts to students do not fall
within the ambit of charitable activities as defined above.

 However, accommodation service in hostels including such services
provided by trusts having declared tariff4 below ` 1,000 per day is
exempt under Entry 14 of the Notification [discussed later in this
chapter] [Circular No. 32/06/2018-GST dated 12.02.2018].

Religious yatras or pilgrimage

 Religious Yatras/pilgrimage organised by any charitable or religious trust are
not exempt. Further, services of transportation of passengers for a
pilgrimage by the charitable trust are not exempt from GST.

 Only such services of religious pilgrimage as are provided by specified
organization in respect of a religious pilgrimage facilitated by the
Government of India (GoI), under bilateral arrangement, are exempt from
GST. [See Entry 60 in above table]. The term specified organization as
referred herein means-

• Kumaon Mandal Vikas Nigam Limited (KMVN), a Government of
Uttarakhand Undertaking; or

• ‘Haj Committee of India’ or ‘State Haj Committee including Joint State
Committee’.

 Hence, as per Entry 60, the services provided by the Haj Committee and
KMVN in relation to a religious pilgrimage facilitated by GoI are not liable
to GST.

Arranging yoga and meditation camp by charitable trusts

 As discussed above, services provided by entity registered under section
12AA of the Income-tax Act, 1961 by way of advancement of religion,

4 The words “declared tariff” have been substituted with words “value of supply” in said entry.
© The Institute of Chartered Accountants of India

4.10 INDIRECT TAXES

spirituality or yoga are exempt as such activities are covered in definition of
charitable activities.

 Fee or consideration charged in any other form from the
participants for participating in a religious, yoga or
meditation programme or camp meant for advancement of
religion, spirituality or yoga shall be exempt.

 Residential programmes or camps where the fee charged
includes cost of lodging and boarding shall also be exempt as long as the
primary and predominant activity, objective and purpose of such residential
programmes or camps is advancement of religion, spirituality or yoga.

 However, if charitable or religious trusts merely or primarily provide
accommodation or serve food and drinks against consideration in any form
including donation, such activities will be taxable. Similarly, activities such as
holding of fitness camps or classes such as those in aerobics, dance, music
etc. will be taxable.

Bhavyajyoti Foundation, a charitable trust registered under section
12AA of the Income-tax Act, 1962, has organized a ‘Meditation Camp’
for the old age people. GST is exempt on the same as services
provided by entity registered under section 12AA of the Income-tax Act, 1961 by
way of advancement of religion, spirituality or yoga are exempt.

Hospitals managed by charitable trusts

Exemption available to health care services under Entry 74 of the Notification
[discussed later in this chapter] is also applicable to the services provided by a
clinical establishment, an authorised medical practitioner or paramedics of a
religious or charitable trust also.

Training or coaching in recreational activities

Besides charitable activities, services provided by way of training or coaching in
recreational activities relating to arts or culture or sports, by a charitable entity
registered under section 12AA of Income-tax Act are also exempt under Entry 80.

The term ‘recreational activities’ is very wide. However, under this entry, the
scope of training or coaching in recreational activities is restricted to the area of:-

(i) arts

(ii) culture

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EXEMPTIONS FROM GST 4.11

(iii) sports

Hence, GST is payable on the training or coaching in recreational activities in
the areas other than arts, culture or sports.

Further, training or coaching relating to all forms of arts, culture or sports is
covered under this entry. In other words, the said exemption is available to
coaching or training relating to all forms of dance, music, painting, sculpture
making, literary activities, theatre, sports etc. of any school, tradition or language
or any of the sports.

GST on services provided TO charitable trusts

Services provided to charitable or religious trusts are not outside the ambit of
GST. Unless specifically exempted, all goods and services supplied to charitable or
religious trusts are leviable to GST.

B. CONDUCT OF ANY RELIGIOUS CEREMONY

Going through Entry 13(a) of the Notification, it can be
inferred that the amount charged, by whatever name called,
for the conduct of any religious ceremony is exempt from GST.
The exemption is applicable to conduct of religious
ceremonies of all religions.

C. RENTING OF PRECINCTS OF RELIGIOUS PLACE MEANT FOR GENERAL
PUBLIC

 Entry 13(a) of the Notification exempts renting of precincts of a religious
place meant for general public owned by an entity registered under specified
sections of the Income Tax Act subject to the consideration charged for such
renting not exceeding the prescribed ceilings as given in said entry. Let us
understand the meaning of the terms ‘religious place’ and ‘general public’
referred herein.

 Religious place means a place which is primarily meant for conduct
of prayers or worship pertaining to a religion, meditation, or
spirituality.

 General public means the body of people at large sufficiently defined by
some common quality of public or impersonal nature.

 The word 'precincts' is not to be interpreted in a restricted manner and all
immovable property of the religious place located within the outer
boundary walls of the complex (of buildings and facilities) in which the

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4.12 INDIRECT TAXES

religious place is located, is to be considered as being located in the
precincts of the religious place. The immovable property located in the
immediate vicinity and surrounding of the religious place and owned by the
religious place or under the same management as the religious place, may be
considered as being located in the precincts of the religious place and
extended the benefit of above exemption.

 The exemption is applicable to renting of precincts of religious places of
all religions.

Activities other than conduct of religious ceremony and renting of precincts of
religious place will be taxable irrespective of the manner or the name in which the
consideration is received. For example, if donation is received with specific
instructions/mutual understanding between the donor and the receiver that
religious place will host an advertisement promoting business of the donor, such
donation will be subject to GST. However, if donation is received without such
instructions or without a quid pro quo in the form of supply of any goods or
services by the receiver to the donor, it shall not be subject to GST5.

2. Agriculture related services

Entry Description of services
No.

24 Services by way of loading, unloading, packing, storage or
warehousing of rice.

24A Services by way of warehousing of minor forest produce.

53A Services by way of fumigation in a warehouse of
agricultural produce.

54 Services relating to cultivation of plants and rearing
of all life forms of animals, except the rearing of
horses, for food, fibre, fuel, raw material or other
similar products or agricultural produce by way of—

5 Discussion is primarily based on CBIC GST Flyer – Chapter 39 - GST on Charitable and
Religious Trusts and other clarifications

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EXEMPTIONS FROM GST 4.13

(a) agricultural operations directly related to production of any
agricultural produce including cultivation, harvesting, threshing,
plant protection or testing;

(b) supply of farm labour;
(c) processes carried out at an agricultural farm including tending,

pruning, cutting, harvesting, drying, cleaning, trimming, sun
drying, fumigating, curing, sorting, grading, cooling or bulk
packaging and such like operations which do not alter the
essential characteristics of agricultural produce but make it only
marketable for the primary market;
(d) renting or leasing of agro machinery or vacant land with or
without a structure incidental to its use;
(e) loading, unloading, packing, storage or warehousing of
agricultural produce;
(f) agricultural extension services;
(g) services by any Agricultural Produce Marketing Committee or
Board or services provided by a commission agent for sale or
purchase of agricultural produce.
(h) services by way of fumigation in a warehouse of agricultural
produce.

55 Carrying out an intermediate production process as job work in
relation to cultivation of plants and rearing of all life forms of animals,
except the rearing of horses, for food, fibre, fuel, raw material or other
similar products or agricultural produce.

55A Services by way of artificial insemination of livestock (other than
horses).

ANALYSIS

ENTRY 54

 ‘Services relating to cultivation of plants and rearing of all life forms of
animals, except the rearing of horses, for food, fibre, fuel, raw material
or other similar products’ under Entry 54 include activities like breeding of

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4.14 INDIRECT TAXES

fish (pisciculture), rearing of silk worms (sericulture), cultivation of ornamental
flowers (floriculture) and horticulture, forestry, etc.

 Further, the term ‘agricultural produce’ means any produce
out of cultivation of plants and rearing of all life forms of
animals, except the rearing of horses, for food, fibre, fuel, raw
material or other similar products, on which either no
further processing is done or such processing is done as is
usually done by a cultivator or producer which does not
alter its essential characteristics, but makes it marketable
for primary market.

 Thus, in terms of the definition of agricultural produce,
only such processing is covered as is usually done by
cultivator producers which does not alter its essential
characteristics but makes it marketable for primary market.
Consequently, following processes are liable to GST:-

(a) Process which alters the essential characteristics of the agricultural
produce: For instance, potato chips or tomato ketchup are manufactured
through processes which alter the essential characteristic of farm
produce (potatoes and tomatoes in this case).

(b) Process which makes agricultural produce marketable in the retail
market: The processes of grinding, sterilizing, extraction packaging in
retail packs of agricultural products, which make the agricultural
products marketable in retail market, would NOT be covered in this entry.
Only such processes are covered in this entry which makes agricultural
produce marketable in the primary market.

Renting or leasing of agro machinery or vacant land

 Item (d) of the entry exempts renting or leasing of agro
machinery or vacant land with or without a structure
incidental to its use. Consequently, leasing of vacant land
with a green house or a storage shed which is incidental to its use for
agriculture is covered in this entry and thus, is not liable to GST.

Agricultural extension services

 Item (f) of the entry exempts Agricultural extension services which mean
application of scientific research and knowledge to agricultural practices
through farmer education or training.

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EXEMPTIONS FROM GST 4.15

Agricultural Produce Marketing Committee services

 Services by any Agricultural Produce Marketing Committee or Board or
services provided by a commission agent for sale or purchase of agricultural
produce are not liable to GST. Agricultural Produce Marketing Committee or
Board means any committee or board set up under a State Law for the time
being in force for purpose of regulating the marketing of agricultural
produce.

 Such marketing committees or boards have been set
up in most of the States and provide a variety of
support services for facilitating the marketing of
agricultural produce by provision of facilities and
amenities like, sheds, water, light, electricity, grading
facilities etc. They also take measures for prevention
of sale or purchase of agricultural produce below the minimum support price.
APMCs collect market fees, license fees, rents etc.

 Services provided by such Agricultural Produce Marketing Committee or
Board are covered in item (g) of entry 54. However, any service provided by
such bodies which is not directly related to cultivation of plants and rearing
of all life forms of animals, except the rearing of horses, for food, fibre, fuel,
raw material or other similar products or agricultural produce, will be liable to
tax e.g. renting of shops or other property.

Warehousing of agriculture produce

 Item (e) of the entry exempts loading, unloading, packing, storage or
warehousing of agricultural produce. In this regard, following may be noted:

 Processed Tea and coffee

Tea used for making the beverage, such as
black tea, green tea, white tea is a processed
product made in tea factories after carrying out
several processes, such as drying, rolling,
shaping, refining, oxidation, packing etc. on green leaf and is
the processed output of the same. Thus, green tea leaves and not tea is the
“agricultural produce” eligible for exemption available for loading,
unloading, packing, storage or warehousing of agricultural produce. Same is
the case with coffee obtained after processing of coffee beans.

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4.16 INDIRECT TAXES

 Jaggery

Similarly, processing of sugarcane into jaggery
changes its essential characteristics. Thus,
jaggery is also not an agricultural produce.

 Pulses

Pulses commonly known as dal are obtained after
dehusking or splitting or both. The process of dehusking
or splitting is usually not carried out by farmers or at
farm level but by the pulse millers. Therefore pulses
(dehusked or split) are also not agricultural produce. However, whole pulse
grains such as whole gram, rajma etc. are covered in the definition of
agricultural produce.

In view of the above, it is inferred that processed products such as tea (i.e. black
tea, white tea etc.), processed coffee beans or powder, pulses (dehusked or split),
jaggery, processed spices, processed dry fruits, processed cashew nuts etc. fall
outside the definition of agricultural produce and therefore the exemption from
GST is not available to their loading, packing, warehousing etc. [Circular No.
16/16/2017 GST dated 15.11.2017].

ENTRY 55

Custom milling of paddy into rice

Milling of paddy is not an intermediate production process in
relation to cultivation of plants. It is a process carried out after
the process of cultivation is over and paddy has been harvested. Further,
processing of paddy into rice is not usually carried out by cultivators, but by rice
millers. Milling of paddy into rice also changes its essential characteristics.
Therefore, milling of paddy into rice cannot be considered as
an intermediate production process in relation to cultivation
of plants for food, fibre or other similar products or
agricultural produce.

In view of the above, it is clarified that milling of paddy into rice is not eligible
for exemption under Entry 55 [Circular No. 19/19/2017 GST dated 20.11.2017].

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EXEMPTIONS FROM GST 4.17

3. Education services

Entry Description of services
No.

66 Services provided -
(a) by an educational institution to its students, faculty and staff;

(aa)by an educational institution by way of conduct of entrance
examination against consideration in the form of entrance fee;

(b) to an educational institution, by way of,-

(i) transportation of students, faculty and staff;

(ii) catering, including any mid-day meals scheme sponsored by
the Central Government, State Government or Union territory;

(iii) security or cleaning or house-keeping services performed in
such educational institution;

(iv) services relating to admission to, or conduct of examination by,
such institution;

(v) supply of online educational journals or periodicals.

However, nothing contained in sub-items (i), (ii) and (iii) of item (b)
shall apply to an educational institution other than an institution
providing services by way of pre-school education and education up to
higher secondary school or equivalent.

Further, nothing contained in sub-item (v) of item (b) shall apply to
an institution providing services by way of,-

(i) pre-school education and education up to higher secondary
school or equivalent; or

(ii) education as a part of an approved vocational education course.

67 Services provided by the Indian Institutes of

Management, as per the guidelines of the

Central Government, to their students, by

way of the following educational

programmes, except Executive

Development Programme: -

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4.18 INDIRECT TAXES

(a) 2 year full time PGPM (Post Graduate Programmes in
Management) for the Post Graduate Diploma in Management, to
which admissions are made on the basis of Common Admission Test
(CAT) conducted by the Indian Institute of Management;

(b) fellow programme in Management;

(c) 5 year integrated programme in Management.

ANALYSIS

“Education” is not defined in the CGST Act, 2017, but as
per Apex Court decision in “Loka Shikshana Trust v. CIT”,
education is process of training and developing
knowledge, skill and character of students by normal
schooling.

Taxing the Education Sector has always been a sensitive issue, as education is
seen more as a social activity than a business one. The Government has a
constitutional obligation to provide free and compulsory elementary education to
every child. Thus, to promote education, it would be beneficial if educational
services are exempted from tax.

However, commercialization of education is also a reality.
The distinction between core and ancillary education is
blurring and education is now an organised industry with
huge revenues. The GST law tries to maintain a fine
balance whereby core educational services provided and received by educational
institutions are exempt and other services are sought to be taxed.

Exemption from GST granted vide Entry 66 and entry 67 stated above can be
discussed under two broad categories – education related output services and
education related input services. The discussion in succeeding paras
fundamentally revolves around these two areas:

 Services provided by an educational institution to its
students, faculty and staff and by way of conduct of
entrance examination against consideration in the form
of entrance fee are exempt from GST. Since exemption is

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EXEMPTIONS FROM GST 4.19

with respect to these services provided BY ‘educational institution’, it is
important to analyse the term EDUCATIONAL INSTITUTION:

Educational institution means an institution providing services by way of,-

(i) pre-school education and education up to higher secondary school or
equivalent;

(ii) education as a part of a curriculum for obtaining a qualification
recognised by any law for the time being in force;

(iii) education as a part of an approved vocational education course.

 Sub-clause (ii) : The term ‘education as a part of curriculum for
obtaining a qualification recognised by any law for the
time being in force’ means the education delivered as ‘a
part’ of the curriculum that has been prescribed for
obtaining a qualification prescribed by law. Thus, in order to
be covered under Entry 66, the education service should be
delivered as part of curriculum. In view of same, it can be
inferred that:

Education services provided Covered in Reasons
sub-clause (ii)

Conduct of degree courses These courses lead to
grant of qualifications
by colleges, universities or

institutions recognized by law

Training given by private Such training does not
lead to grant of a
coaching institutes

recognized qualification.

Education as a part of a Only a course recognized
by an Indian law are
prescribed curriculum for

obtaining a qualification covered herein.

recognized by a law of a

foreign country

 Sub-clause (iii) covers institutions providing services by way of education as
a part of approved vocational course. An approved vocational education

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4.20 INDIRECT TAXES

course means, -

a course run by an ITI/ ITC** affiliated to the National
Council for Vocational Training (NCVT) or State Council for
Vocational Training (SCVT) offering courses in designated
trades notified under the Apprentices Act, 1961 or

a Modular Employable Skill Course, approved by the
NCVT, run by a person registered with the Directorate
General of Training, Ministry of Skill Development and
Entrepreneurship.

**Industrial Training Institute/ Industrial Training Centre

 It is to be noted that only those institutions whose operations conform to the
specifics given in the definition of the term “educational institution”, would
be treated as one entitled to avail exemptions provided by the law.

 This would mean that private coaching centres or other unrecognized
institutions, though self-styled as educational institutions, would not be
treated as educational institutions under GST and thus cannot avail
exemptions available to an educational institution.

 Private ITls qualify as an educational institution if
the education provided by these ITls is approved as
vocational educational course as defined above.

It implies that services provided by a private ITI
only in respect of designated trades notified under
Apprenticeship Act, 1961 are exempt** from GST under Entry
66.

**Services in other than designated trades are liable to GST

In case of designated trades, services provided by a private ITI
by way of conduct of entrance examination against
consideration in the form of entrance fee is exempt from GST
under Entry 66(aa).

Further, in respect of such designated trades, services
provided to an educational institution, by way of, services
relating to admission to or conduct of examination by a
private ITI will also be exempt under Entry 66(b)(iv). However,
in case of other than designated trades in private ITls, GST

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